8) Government spending takes money out of the economy.Reality: Government is We, the People and the money it spends is on We, the People. Many people do not know that it is government that builds the roads, airports, ports, courts, schools and other things that are the soil in which business thrives. Many people think that all government spending is on "welfare" and "foreign aid" when that is only a small part of the government's budget.

12 comments:

ceemac
said...

You wrote:Many people do not know that it is government that builds the roads, airports, ports, courts, schools ...

My comment:Of course the folks in Ky are going to wake up tomorrow with a new senator who does not believe gov't has a role in any of those things except for courts. ( unless he disagrees with his daddy)

5) Partly right, but only in a static economy. In a dynamic, growing economy with new products, ideas and capital investment, you misunderstand how businesses make decisions. Not every investment is profitable. And you don't know, before investing, whether it will be profitable. So you have to build in enough profit to insure that you have compensated, by higher anticipated returns, for the risk it will not be profitable at all. (So there are higher returns on riskier investments). Any increase in marginal tax rates proportionately reduces the anticipated profit from a given investment. So, with higher marginal rates, a new product or factory is no longer worth the risk and the investment is not made (the money stays in T-bills). Business people, and I know a lot of them, do not invest because of short term demand, they hire because they see long term profits. We need to reduce marginal rates not to give the rich more money, but to make more investments (which require workers) profitable.

6. Dead wrong. You rely on completely arbitrary numbers developed for political purposes. And you are asking the wrong question. First, even if it reduced deficits, that is only because it contains higher taxes. There is no question that the new SPENDING is over a $1T, and that only for the first 10 years after which it goes higher. That COST is offset by taxes and reductions in spending on Medicare, which will never come into effect. And even if they do, it will be on the backs of doctors getting paid less than market value for their services and retired people getting less care than they want. How can a government run program ever be more efficient than the market?

There is only an indirect relationship between the tax rate of the highest income individuals and the investment decisions of businesses. And this relationship diminishes when we move from the top 5% of incomes to the top 1% of incomes.

7) Huh? I have one question. Where has the government been keeping the trillions in trust fund money? Savings accounts? GM stock? The answer, government IOU's. When outgoes exceed FICA taxes, as they well very shortly, social security will have to start calling these IOU's at which time taxes will go up, other spending will go down or the deficit will go up - or maybe we can start selling assets like national parks.

8) Sort of. As with many progressives, you miss the distinction between "the people" or "the community" on the one hand, and "the government" on the other. The government may be chosen by the people, but it is neither the people nor the community. And the more that government rules are made by unelected judges or administrative entities, and the more discretion these unelected folks have in interpreting and enforcing the law, the futher from the People the government gets. Some government spending does create wealth, such as building some roads and parks, worthwhile scientific research, and so on. Other government functions help the creation of wealth such as national defense, and protection of private property which together create a shield behind which the private economy can function. Similarly, we need protection from fraud and so on. But government spending which does not create wealth, or protect those who do, does in fact reduce the total amount of goods and services produced by the economy. Transfer payments generally fall into the latter category. Also much unneeded or counter-productive regulation not only takes money out of the productive economy, but by adding unnecessary red tape or restrictions, hobbles business in being productive. What the proportions are between productive and unproductive government activities is open to discussion, but it is clear that substantially less than 100% of government spending does anything to increase national wealth.

"There is only an indirect relationship between the tax rate of the highest income individuals and the investment decisions of businesses."

Well yes. But there is a direct relationship between the tax rate on business income (much of which is at individual rates) and investment decisions of businesses. We need to reduce marginal rates for both. (I'd save most of the revenue by eliminating deductions.)

"The overhead of Medicare is a tiny fraction of the overhead of any for-profit insurance plan."

True as far as it goes. But the fact is that the "overhead" spending (where private insurers weed out improper claims) would not be undertaken by a profit seeking business unless it actually increased profits. Were you asleep in Econ 101?

"Also, universal care reduces the exceptions and overlaps that a non-system of many kinds of market insurance plans provide."

This is the ultimate progressive conceit, that some government agency can run things better than a free market. Maybe we should try to compare the efficiency of our free markets with those of the Soviet Union - oh wait, they aren't around any more.

And of course, we don't have a free market in health care now, so being critical of the current system is setting up a straw man. What we really need are market solutions.